CVS Quits Cigarettes, Adjusting To New Health Care Landscape

September 3, 2014

CVS has rebranded itself, changing its corporate name from CVS Caremark to CVS Health. On the very same day, the company has also fulfilled a promise it made earlier this year: No more cigarettes on its store shelves. For more on the decisions, Audie Cornish talks to Bruce Japsen, who covers health care business for Forbes.

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Transcript :

AUDIE CORNISH, HOST:

In New York’s Bryant Park today, there was an unusual scene – a huge cigarette, maybe 30 feet high, stamped with the words, cigarettes out, health in and some free lollipops.

NICKO LIBOWITZ: Hey folks. Did you guys get a lollipop yet?

CORNISH: Nicko Libowitz was handing out treats on behalf of CVS.

LIBOWITZ: So CVS is quitting cigarettes.

UNIDENTIFIED WOMAN: Thank you.

LIBOWITZ: And we’d like you all to celebrate with us.

CORNISH: CVS actually decided to stop selling tobacco products earlier this year. The company is marking today as the day that it’s fulfilled that promise. No more cigarettes on the shelves. And today CVS rebranded itself. Its corporate was CVS Caremark, now it’s CVS Health. Bruce Japsen covers health care business for Forbes, and he joins us now. Bruce, welcome.

BRUCE JAPSEN: Hey, thanks for having me.

CORNISH: So let’s put what’s happening today in context because this is a lot of PR. But what’s the thinking behind it?

JAPSEN: Well, a lot of people don’t realize that Affordable Care Act is not just this political football but this is a big business opportunity for anybody in the health care business. And when you’re CVS or their rival Walgreens and you have pharmacies on practically every corner in America, they want to capitalize on this. And they see millions of paying customers coming in their door, and they want to get a piece of that. And they want to not only with their decision to pull the cigarettes from the shelves a month early, they’re rebranding themselves as CVS Health. They want people to know they’re not necessarily just a retailer anymore. They’re a health care company.

CORNISH: And when we talked to the CEO of CVS, Larry Merlo, back in February, here’s what he had to say.

LARRY MERLO: Health care is evolving, and this decision positions us for a growing role in our health care system.

CORNISH: Bruce, CVS is already, what, the biggest seller of prescription drugs in the U.S.? I mean, how much more of a market opportunity do they need?

JAPSEN: There is a bigger market. I mean, people have to remember that we’re talking – just with the people who had signed up for the exchanges who’ve not had health care before – you’re talking 8 million new customers. More and more states are expanding their Medicaid insurance for the poor which is actually going to be much more than that 8 million. So there are millions of potential customers out there, coupled with the fact that a lot of people talk about a primary care doctor shortage. And also there’s an emphasis by your insurance companies and your employers to stop paying for expensive hospital care. And so the pharmacies have been lobbying in states to get pharmacists to not only give you the pills but also administer vaccines and nurse practitioners to do physicals for back-to-school kids and wellness exams and all sorts of things. And so these retailers are saying we are here to be the primary care provider – your family doctor, if you will. What better way to do that than say hey, we’re not smoking and oh, by the way, we’re changing our name?

CORNISH: As we mentioned, CVS announced this shift in focus back in February. How has Wall Street responded? I mean, obviously tobacco sales are a big business, too.

JAPSEN: Yeah, definitely. That’s a great question. I mean, they are losing out on 2 billion in sales. But I think all these companies are going to be generating and getting a lot of sales through the Affordable Care Act and such. And so no one should feel sorry for them. And their stock is trading near a 52-week high and it was up another percent almost today. So Wall Street likes this, and it looks like it’s definitely not just a public health maneuver but an effort to rebrand the company.

CORNISH: Bruce Japsen, while this evolution is happening in this particular industry, politically, the Affordable Care Act still has a target on its back, right? I mean, there is very much an effort still to make substantial changes. There are legal challenges that are ongoing. But when a company like CVS does this, is this in fact the business community saying hey, it’s happening and we’re on board?

JAPSEN: Oh, definitely. And this law is not going anywhere. And here’s an example of it. You now have big business making big money on this. Let’s face it. If you’re a congressman and you’ve got CVS’s in your district and they’re making money off this and hospitals making money off this and employing people and hiring more people, it’s going to be awfully difficult to rein in the entitlement aspect or the benefit aspect when companies are making big bucks off of this.

CORNISH: Bruce Japsen, thanks so much for talking with us.

JAPSEN: Thanks for having me.

CORNISH: Bruce Japsen. He covers health care business for Forbes. His book is called “Inside Obamacare.” Transcript provided by NPR, Copyright NPR.

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